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How is innovation faring during the downturn? The answer depends on whom you ask.

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How is innovation faring during the economic downturn? The answer depends on whom you ask. Recently, we have seen interesting, but somewhat conflicting, reports on the state of innovation in the U.S. economy.

First, The Wall Street Journal reported some surprising good news last week: Despite the economy, large U.S. companies spent almost as much on R&D in the fourth quarter of 2008as they did a year prior. Write Justin Scheck and Paul Glader of The Wall Street Journal: "Big R&D spenders say they've learned from past downturns that they must invest through tough times if they hope to compete when the economy improves."

4 Comments On: The state of innovation

The question for me is not are they investing enough in innovation, but are they investing in the right things.
Measuring investments in R&D provides an extremely narrow view of innovation.

Innovation is only done by people and those who are effective require a particular skill set in order to innovate effectively. Innovation is required most when strategic and tactical skills are insufficient. Companies need to invest heavily in unlocking the sources of innovation. As far as I know the only sources of innovation are human.

Operating on the assumption that there is an abundance of technical domain knowledge in most companies, the question then becomes how should we invest in our people to maximize their capacity for innovation? The skill sets needed to unleash human capacity innovation can be summed up as three primary things: design, leadership and creativity.

The problem, as I see it, is that in order to build the capacity for innovation, you have to help people learn more about them. These aren’t skills that are learned by reading about them or taking a class. Although cognitive learning is useful, it’s also some that has to be experienced to be understood. As boomers leave the workforce in droves, the concern becomes how to we transfer the knowledge that comes from experience to the next generation – so that their innovations are not only great ideas but ideas that can sustain a company ethically over the long term.

There are at least three good reasons why this is a great time for innovation:

–Your competitors may be unable to keep up. Weak companies face pressure from less demand and access to credit, most visibly in the retail and automotive sectors, but elsewhere as well. If the strong companies continue to invest, they’ll come out of this well ahead of the ones who are forced to retrench.

–Strategic partners such as contract manufacturers may be willing to take on projects that they were too busy to handle two years ago.

–Finally, I disagree with the notion that investing in incremental improvements to current products impedes innovation. That’s true only if you narrowly define innovation as creating “new to the world” products and see technology development as a zero-sum game.

Instead, I see the pressure to improve products so that they deliver more value at lower cost is an opportunity to sharpen and focus our innovative prowess on things that have greater customer and business value, including innovations in manufacturing and supply chains that may not have the glamour of the next iPod but may contribute much more to sustainable competitive advantage. For example, we’re not reading about Toyota’s imminent demise even though they’ve had the same pressures on the demand side as GM.

Bublu Thakur-Weigold | April 22, 2009

Incremental or not, innovation must be managed in terms of return on investment. Even before the crisis, I knew few executives who were really eager to grant their R&D departments big budgets, assuming that profitable new products would soon come their way… There are, fortunately, more ways to innovate than the traditional, brick-and-mortar in-house R&D departments (whose uncertain success rates and declining returns are a fact). These methods are also independent of economic cyles and especially crises. All the more is it urgent that companies re-work their innovation models (including processes, structures, and cultures). It will not be competitive enough to nurture and fund a few “experts”, assuming that in due time, they will yield “the answer”. Open innovation, which seeks input from a huge network of solvers, is a much more effective model for bringing in ideas. Ready-made solutions from other industries or contexts can revolutionize the way your own organization does or makes things, and that much cheaper than waiting for the serendipitous eureka cry. A few smart companies have successfully implemented programs to establish the “innovate-don’t-invent” process and culture, but as this article proves again, the notion has not yet reached a wide audience. Maybe this crisis, with all its upheavals and opportunities, will shake up the old way of looking at innovation.

Ray DeBruhl | September 25, 2011

Investments in innovation and capital expenses always are right during a down economy. Cycles have always been prevalent in our capitalistic system and always will be. To be believe that the economy will not turn around is to believe the world is flat. Being prepared through investments in innovation and capital expenditures will profit those companies in the long run. They will be the ones ahead of the curve when the economy moves back up in the cycle. This is true not only for the S&P 500 companies but for the small businesses on main street.
Ray DeBruhl